Banks, Brokers Deceive 'Less Combative' Seniors, Lawsuits Show

Senior citizens have long been a coveted demographic for financial fraud, but when banks, too, try to get in on the action, something really stinks. The case of a Wachovia client who recently sued the bank for turning a blind eye on a questionable practice that cracked her nest egg, and the attorney who helped her win back her losses, shines light on the hidden relationships between banks and brokerage firms that sell investment products.

In a claim against Wachovia, as in similar cases that securities fraud attorney Mark Tepper said he has tackled, a retired court clerk alleged a bank teller disregarded her request for opening an IRA account and instead told her to speak with a Wachovia financial adviser. The adviser was not an employee of the bank, but worked for its sister company Wachovia Securities, Inc. (now Wells Fargo Advisers), and had a desk on the premises of the bank.

Wachovia disagreed with the $25,000 award, set by the Financial Industry Regulatory Authority, which also ordered an additional $5,525 interest payment to the bank's client.

"The paramount priority of our firm is always to do what is right for our clients. Any implication that practices contrary to that priority ever 'flourished' or have 'been allowed to flourish' in this organization is simply incorrect," a spokesman for Wells Fargo said.

The practice of redirecting seniors to investment specialists, even when they only request simple services such as buying Certificates of Deposit or opening a money market account, is something banks do to develop business for their affiliate companies, the Fort Lauderdale, Fla.-based Tepper said.

"Some banks institute policies like these that reward tellers for referring bank clients to the broker that's sitting in the bank," Tepper, a former New York assistant attorney general, told Consumer Ally. "Elderly people are a targeted group for these aggressive types of referrals because they just seem to be less combative."

In another case Tepper won for a client, an AmTrust bank teller told Jacob Froess, a 56-year-old retired auto mechanic who wanted to purchase a $70,000 CD, that he had to speak with a financial adviser. Unknown to the client, the adviser did not work for AmTrust bank, but for its sister company, AmTrust Investment Services, Inc., which sells mutual funds, annuities and life insurance.

To convince him to abandon his plan for a CD and buy into a high-risk mutual fund instead, the adviser told Froess that CD rates are low and that he could do much better than a CD, according to the lawsuit. To cajole him to pay a $3,157 up-front fee, she explained: "This stuff is so good that you have to pay to get in -- but it is worth it, it is that good! And you will make it back in short order, and make more money."

Froess, who earned less than $25,000 a year and had saved the money in his CD over eight years, had virtually no experience with stocks, bonds, or mutual funds. Despite this, the adviser indicated he had good knowledge of each type of investment, including, astonishingly, options, variable contracts and limited partnerships, the claim said.

When he realized a few months later the investment did not earn any interest and was in fact losing money, he sold it -- at a loss of $12,000.

"This is a bait and switch case," Tepper's claim against AmTrust contended. A FINRA arbitration panel awarded Froess full restitution of his losses, plus $7,000 in what would have been accrued interest had his investment performed as promised.

AmTrust did not return a call seeking comment.

Although it is hard to estimate how often banks try to game elderly consumers, or which banks incentivize their tellers to steer clients to investment advisers, the end result is alarming.

"Anytime somebody tells you to go see a financial adviser, you ought to ask yourself what interest they have in making that suggestion," Tepper said. "Banks should have signs to make it clear that the financial brokers they refer people to are not bank employees, because of the possibility of confusion. The banks are taking advantage of confusion."